Network Governance: Theory Development and Examples

Abstract

Transaction Byte Analysis (TBA) is developed as a methodology to research firms governed by more than one board. TBA grounds social research in cybernetic laws to create a science of governance. Any co-ordination between social creatures requires the creation, transmission, reception and internal processing of signals measured in bytes. TBA fills a methodological gap for comparing control and communications networks within and/or between individuals and organizations. TBA also explicates why evolution has created contrary instincts in social animals to sustain and regulate themselves in unknowable, dynamic complex environments. TBA reveals why the neurological and/or physiological limits of humans to process bytes requires complex organizations to decompose decision-making labor into a network of control centers described as a “compound board.” A dominant shareholder represents a control center so compound boards govern most publicly traded firms around the world. Examples of large firms with network governance are used to reveal how compound boards allows contrary views to arise to improve operations, self-regulation, self-governance and sustainability. TBA reveals why regulation of complex firms by a single board and/or government regulators cannot be reliably achieved without network governance to allow stakeholders to become co-regulators with contrary viewpoints. Digital communications facilitate organizational research using TBA.